BY: Gerry Cantlon, Howlings
HARTFORD, CT – The XL Center drama continues.
Two weeks after no money was allocated toward the building, and after the state legislature took a pass on the $100 million dollar request, a new phase has opened up to keep the hope alive of an XL Center reboot project.
After two years of failed negotiation with the atrium’s title holder, Northland Corporation of Newton, MA, the CRDA has been given a six-month authority to seek to obtain that portion of the building via eminent domain. For now, the trigger is being held in abeyance.
“We’re holding off pending further discussion with legislators who have raised questions, and Northland Corporation, but there isn’t an infinite time period. We need to have this resolved. This is a building that we need to make strategic investment in to protect what we see as very important public asset. It’s beyond just fixing the elevators at this point,” CRDA Executive Director Mike Freimuth stated.
Because of a current Non-Disclosure-Agreement (NDA) between the parties involved, the figures themselves can’t be discussed.
“The distance is substantial between us (the proposals). Our formulation which is based a lot on market forces and appraisals have been all similar in all three appraisals. Northland has a set figure what they believe the value is based related to their mortgage and real estate property they have in the city that’s as much as I can say,”
A trusted hockey source with knowledge of eminent domain law as well as the legislative situation, paints a positive picture of the impending legal engagement that’s likely set to begin, but a more pessimistic view of the building ability to survive.
“Legally, they (the CRDA) have a strong basis since the building is a government-owned entity (by the city of Hartford) and there is plenty of strong case law beyond the ‘Kelo vs. New London’ decision which I think they would prevail on. If they do gain a favorable judgment, the only portion of the decision that can be appealed is the compensatory aspect since both parties have differing views on the property value of the atrium it would be then decided by a judge, which is the more correct value.”
The time frame in which the case would be heard would likely be 60-90 days from the filing date.
However, the clock on the XL Center is ticking and the sand is moving quicker in the hour glass.
“(There’s) no question that time is running short on the building, and the biggest entity that could be affected will be UConn sports. The impact without the XL could be significant, most particularly the hockey program. Given the budget now and in the future it isn’t favorable right now.”
Freimuth confirmed some of eminent domain procedures that are to follow.
“We have six months to utilize this authority and its about thirty days of filing papers and motions very shortly thereafter a judge would hear both sides. Once a judgment is rendered, it is immediate. The compensation portion however could go on for years.”
Building around the XL Center without this do not understand contract law.
“We have basically four organizational entities concentrating on one square area of earth, a part of ground is owned by the city, another by the state, and then you have Northland. To make it function operationally has been very challenging. We pay a premium to operate in that part of the Earth. The public can’t see the arena from the street because it was built inside a 1970’s mall structure.”
The RFP process to find a buyer as per the last bond money allocation is currently underway and has received to date just one bidder so far.
Freimuth described the lone bidder in an interview with Cantlon’s Corner last month which he characterized by saying, “At this point, the conversations are very, very preliminary and superficial.”
Turns out it wasn’t so superficial from the bidders perspective.
The Hartford Business Journal, who first broke the story last month from its sources, state that the alleged bid comes from Oak Street Real Estate Capital, LLC., an equity firm based in Chicago. Read that story HERE.
That story spread to the Hartford Courant. Read it HERE.
The process has just begun and there has been an extension of the question period until May 30th according to Venue Director, Kim Hart.
“To date we have one party that has taken out an informational packet with our NDA. We have spoken to several other interested parties to this point. Our closing date is June 30th, but we reserve the right, as per the RFP, to extend the deadline, especially if we get a rush of parties who take out the formal packet.”
The procedure is very straight forward and privacy is a big concern.
“We have a data room available to prospective parties to review the buildings current and historical financial data and as well as sensitive building specs. While we are very transparent, information is available on our website. There are, as you can imagine, security concerns with financial and building plans that we simply can’t have on line. That said, we are working with any and all interested parties for this RFP.”
There are seven major points to consider in the process.
1 – There is an RFP process now underway with the rules of the road being what the CRDA sets them out to be in its proposal in “buying” the arena. This “unsolicited” bid was possibly done without an understanding of some of the requirements in the soon to be released RFP. The likelihood that somebody at Oak Street Real Estate Capital, LLC., woke up one day and while driving down Michigan Avenue thought, “Hey, the XL Center is going up for sale let’s make a bid!”
There is more to this bid than meets the eye as Freimuth confirmed.
“It came from a Fairfield County investor who does business with Oak Street and they were already doing some business with the city of Hartford and mentioned it to them as an idea.”
2 – A big problem for the CRDA is they still doesn’t own the atrium. The CRDA recently submitted to Northland Corporation, the current title holder, a third bid after another reevaluation was done to determine the value of the property and that process is at an impasse and the aforementioned eminent domain being now on the horizon.
3 – All the building’s tenants, The Hartford Wolf Pack, UConn’s three teams and the signature naming company, XL Insurance, and Spectra, the managing operator of the building, all have renegotiation clauses in their new contracts. That means four separate negotiations that won’t be simple or easy.
UConn has a 20 year L.O.I. (Letter Of Intent) agreement in their back pocket. It gives them unprecedented revenue in exchange for not paying rent, but guarantees contests at the XL Center over a 20 year period at a fixed 30 events per year.
4 – The building has serious long-term and short-term debt that Oak Street probably has now seen in it’s books and with the state’s bond rating having just been down graded, it means the cost of borrowing more money to cover the debt will be more expensive.
That part of their proposal, prior to the RFP process beginning, caught Freimuth’s eye and he wasn’t singing Hallelujah.
“It didn’t pass my smell test,” Friemuth said. “To purchase was one thing, then put up the capital and want a return at a significant interest rate required more questions such as the source of the funding, which institutions would be doing the lending, and what are other sort of financial guarantees are needed, or expected. It raised many more questions than it answered.”
5 – The building is a union property and has its own contract and issues with building management so that too would be a thorny issue to say the least.
6 – The marketplace, especially regarding concerts, is changing and in 2019 the XL will start to see less of them unless the building is upgraded and gets a partnership with someone who can bring in at least five acts a year.
7 – Last, but certainly not least, is that time and public money are in short supply. The and city and state still wants a piece of the action and the ability to maintain control over the building in part to justify the $90 million dollars they’ve already allocated. A public-private partnership with any future selected buyer will have major legal and statutory hurdles to overcome, as does a private equity company or building manager. Would they want that hassle?
You can’t underestimate how great an achievement this would be if this Hail Mary play turned the trick and saved the building and sports in Hartford.
But, there is still a pro-wrestling-like dramatic twist in the mix and that’s the ongoing casino battle that has a direct impact on the XL Center.
It has been reported that MGM Springfield casino, which is slated to open on August 24th, may be sold before it even opens to a partnership between the Mohegan Sun and Foxwoods.
It seems that MGM has a bigger prize in mind. It seems they are going to go to Everett, MA after gaining a casino license there. The WSJ (Wall Street Journal) reported they are interested in the $2.4 billion Wynn Resorts, LTD project which is just outside of Boston. Due to the sexual misconduct allegations against owner Steve Wynn, who has since stepped down, either Wynn LTD may opt-out or the state of Massachusetts might pull the license.
MGM Springfield is said to be interested in purchasing the license and if they did would be required to sell MGM Springfield as MA casino law forbids any entity from owning two casino’s within the state.
This obviously presents a whole new scenario. If the Indian-owned casinos of CT purchase and begin running the Springfield casino, then the proposed East Windsor casino becomes moot. They are waiting on the Federal tribal commission approval for that project which has been delayed. The old movie theater site was knocked down just last month in preparation to start.
How this will affect the XL Center going forward is anybody’s guess at this point.
“Ain’t my problem,” Freimuth said with a laugh.
Stay tuned to see what happens next in this ever-evolving soap opera.
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